Stock Pickers’ View of ’87 Is Mostly Bullish

What you probably really want to know about the new year is how you can make money.

So The Times sought out research directors at five Los Angeles-based brokerage houses for their favorite stock picks and their forecasts for the overall market. Results, of course, are not guaranteed.

Specifically, The Times asked for predictions of the high, low and close of the Dow Jones average of industrial stocks for this year and for the names of 10 stocks that they believe will perform well during the year.

Next year at this time, The Times will check to see how these stock pickers fared. Last year’s suggestions from the three analysts who participated both this year and last were somewhat less than impressive. They generally were bullish on technology stocks, which fared particularly poorly.

Most of the analysts polled are at least moderately bullish on this year, with two expecting the Dow Jones average of industrial stocks to hit 2,500 from its year-end closing of 1,895.95. They also see the fruits of the bull market spreading from blue-chip stocks to the more speculative stocks of smaller growth companies, generally traded over the counter. They in particular like stocks in technology, health care, financial services and energy.

WERNER E. KELLER

Bateman Eichler, Hill Richards

1987 Dow Forecast

High: 2,500

Low: 1,850

Close: 2,350

1987 Stock Picks:

Cybertek Computer Products (software) OTC

D.H. Technology (computer printer heads) OTC

Diagnostic Products (medical test kits) OTC

GlenFed Inc. (savings and loan) NYSE

Maxicare Health Plans (health maintenance organization) OTC

Owens-Corning Fiberglas (building materials) NYSE

Rykoff-Sexton (food service) NYSE

20th Century Industries (insurance) OTC

Vendo Co. (vending equipment) NYSE

Westcorp (savings and loan) OTC

A stronger-than-expected economy and robust gains in corporate profits should lengthen the bull market, Keller predicted. This year “could be the year we’ve been waiting for in stocks,” he said, noting that the failure of the market to take a long-term tumble after the Ivan F. Boesky insider trading scandal and President Reagan’s Iranian arms controversy indicates underlying confidence in stocks.

Among specific stocks, Keller likes 20th Century Industries, which provides auto and homeowners insurance for low-risk clients. He expects the firm to enjoy annual earnings and revenue growth of between 25% and 30% during the next three to five years.

Keller also likes Owens-Corning Fiberglas because of its “explosive earnings potential” following a restructuring under which it is selling underperforming divisions to reduce debt. He expects Maxicare, the nation’s largest publicly traded health maintenance organization, to benefit from consolidation in the HMO industry.

Results of 1986 Forecast:

High: 1,750, off by 206 points

Low: 1,500, off by 14 points

Close: 1,650, off by 246 points

GREGORY H. KIESELMANN

Morgan, Olmstead, Kennedy & Gardner

1987 Dow Forecast

High: 2,500

Low: 1,900

Close: 2,200

1987 Stock Picks:

American Medical International (hospital management) NYSE

Barris Industries (entertainment) OTC

Caesars World (gaming) NYSE

Caremark Inc. (home health care) OTC

Great Western Financial (savings and loan) NYSE

MCA (entertainment) NYSE

PS Group (air transportation, real estate, oil and gas) NYSE

Texaco (energy) NYSE

Wickes Cos. (diversified retailing) Amex

(Only nine stocks were picked.)

Continued low interest rates and inflation will spark a continued bull market, Kieselmann said. “These are the factors that created the bull market all along,” he said. Another positive for stocks is the relatively low yields of alternative investments such as Treasury bills, he said. However, one negative factor is that the bull market is getting old, having been around since 1983, he said.

As for specific stocks, Kieselmann favors Barris Industries, a producer of television game shows, because “game shows are a hot item again in terms of viewer interest.” PS Group is attractive as an asset play, he said, as it will be loaded with cash after selling its PSA airline unit to USAir and after other possible asset sales.

Caesars World will gain market share as a result of upgrading its gaming operations in Nevada and Atlantic City and will produce 20% annual gains in earnings and revenues during the next three to five years, he predicted. Great Western has been aggressive in reducing its exposure to fixed-rate loans and is cheap relative to other savings and loan stocks, he said.

Results of 1986 Forecast:

(Morgan, Olmstead did not participate last year)

STEVEN B. REID

Wedbush, Noble, Cooke

1987 Dow Forecast

High: 2,150

Low: 1,700

Close: 1,950

1987 Stock Picks:

American Medical International (hospital management) NYSE

Beeba’s Creations (women’s apparel) OTC

Beverly Enterprises (nursing homes) NYSE

Caremark (home health care) OTC

Cimco (plastics) OTC

Comarco (defense software technical services) OTC

HealthVest (real estate investment trust) Amex

International Lease Finance (airplane leasing) OTC

Optical Radiation (opticals) OTC

Syncor International (radiopharmaceuticals) OTC

Reid is cautious on the market, contending that many stocks have become pricey and that the economy will not be as strong as many economists predict. Thus, the market will be weak in the early part of the year, but will pick up in the second half.

Reid is bullish on several sectors, including hospital management, which has absorbed the cost of recent restructuring efforts; specialty apparel, which will continue to enjoy strong demand despite an expected slowdown in consumer spending, and real estate investment trusts (REITs), which will continue to produce high dividend yields, he predicted.

As for specific stocks, Reid likes Cimco, a plastics manufacturer that he said is gaining market penetration and market share. He also picks Beeba’s Creations, a seller of lower-price women’s fashions that he expects to enjoy 35% annual earnings growth and higher margins. HealthVest, a REIT that invests in psychiatric care properties, could enjoy a total return from its dividend yield and price appreciation of 30% this year, he predicted.

Results of 1986 Forecast:

(1986 forecast for Wedbush was made by Thomas J. Foster, who resigned as Wedbush research director last year)

High: 1,650, off by 306 points

Low: 1,350, off by 164 points

Close: 1,650, off by 246 points

DONNA HOSTETLER

Crowell, Weedon & Co.

1987 Dow Forecast

High: 2,210

Low: 1,740

Close: 1,950

1987 Stock Picks:

American President (shipping) NYSE

Baker International (oil services) NYSE

C. R. Bard (surgical specialties) NYSE

Gottschalks Inc. (retailer) NYSE

Halliburton Co. (oil services) NYSE

Newport Corp. (products for laser research) OTC

Optical Coating Laboratory (optics) OTC

Standard Oil (energy) NYSE

Unisys (computers) NYSE

Westinghouse Electric (electrical equipment) NYSE

Hostetler is moderately optimistic, predicting that the bull market will broaden beyond blue-chip stocks into emerging growth stocks. Investors also might find profitable returns from investing in stocks in such “cyclical” industries as technology, metals and manufacturing, she said.

As for specific stocks, Hostetler favors Gottschalks, a retail chain in central California that is underfollowed by Wall Street even though it will enjoy 15% to 20% annual earnings growth, she said. American President, a trans-Pacific shipping line, is attractive for its “superior management” and as a pure play on the growth of the Pacific Rim, she predicted.

Standard Oil will perform well because “the worst is over for the oil industry and stock prices should start to ratchet back up,” she said.

Results of 1986 Forecast:

High: 1,760, off by 196 points

Low: 1,550, off by 36 points

Close: 1,550, off by 346 points

ROBERT M. HANISEE

Seidler Amdec Securities

1987 Dow Forecast

High: 2,250

Low: 1,775

Close: 2,100

1987 Stock Picks:

Comarco (defense software technical services) OTC

C.O.M.B. (retailer) OTC

Consolidated Stores (discount retailing) NYSE

Electrospace Systems (defense electronics) NYSE

Evans & Sutherland Computer (graphic imaging systems) OTC

General Dynamics (aerospace) NYSE

MCA (entertainment) NYSE

NCA (software) OTC

Optical Radiation (optical products) OTC

Sizzler Restaurants International (restaurants) OTC

Hanisee sees a dull market through this year’s first half due in part to uncertainty with tax reform and defense spending, and growing sluggishness of consumer spending. But the picture should improve in the latter half of the year, thanks to continued stable prices and low interest rates, he said.

Hanisee particularly likes the high-technology area, not just because it is his firm’s specialty. Stocks in this group “have been out of favor for so long” and are overdue for a rally, particularly given recent moves by high-tech firms to cut costs and reduce inventories, he said.

One technology stock to watch is Comarco, a defense software and defense technical services firm that has been battered by the loss of the investment tax credit but will rebound due to growing markets and good acquisitions, Hanisee said. General Dynamics is in the “catbird seat” to get a lock on the world fighter-airplane market with Northrop’s recent decision to drop the competing F-20 fighter, he said.

But Hanisee also likes some non-technology stocks, including Consolidated Stores, a retailer of close-out merchandise that will continue to enjoy above average earnings growth, he said.

Results of 1986 Forecast:

High: 1,972, off by 16 points

Low: 1,492, off by 22 points

Close: 1,519, off by 377 points

WERNER E. KELLER / Bateman Eichler, Hill Richards

Stock Open High Low Close Applied Magnetics (computer components) NYSE 14 7/8 20 12 3/4 14 7/8 Cannon Group (film production) NYSE 29 1/2 45 1/2 9 1/2 11 3/8 Financial Corp. of America (S&L;) NYSE 10 17 6 7/8 7 1/2 GlenFed Inc. (S&L;) NYSE 17 1/2 27 3/8 17 24 Carl Karcher Enterprises (restaurants) OTC 16 1/2 20 7/8 13 5/8 16 7/8 Lockheed (aerospace) NYSE 49 1/8 60 43 50 1/8 Marshall Industries (electronic components) NYSE 10 3/4 13 3/8 8 10 Occidental Petroleum (energy) NYSE 31 31 22 5/8 27 1/2 PacifiCare Health Systems (health care) OTC 17 17 10 10 SFE Technologies (electronic components) OTC 7 3/8 10 2 5/8 3 5/16 Total average return

percent Stock Change Applied Magnetics (computer components) NYSE -- Cannon Group (film production) NYSE -61.4 Financial Corp. of America (S&L;) NYSE -25.0 GlenFed Inc. (S&L;) NYSE +38.6 Carl Karcher Enterprises (restaurants) OTC +2.0 Lockheed (aerospace) NYSE +2.0 Marshall Industries (electronic components) NYSE -7.0 Occidental Petroleum (energy) NYSE -11.3 PacifiCare Health Systems (health care) OTC -40.6 SFE Technologies (electronic components) OTC -55.1 Total average return -15.8

DONNA HOSTETLER / Crowell, Weedon

Stock Open High Low Close Advanced Micro Devices (semiconductors) NYSE 29 32 7/8 12 7/8 13 3/4 Augat (electronics) NYSE 26 27 1/2 15 15 3/4 Avnet (electronics) NYSE 34 40 3/8 25 25 3/4 Dataproducts (computer printers) Amex 16 3/8 18 11 1/8 11 1/2 Hewlett-Packard (electronics, computers) NYSE 36 3/4 49 5/8 35 3/4 41 7/8 Honeywell (info. processing, computers) NYSE 74 1/8 84 58 59 1/8 International Business Machines (computers) NYSE 155 1/2 161 7/8 119 120 Loral (defense electronics) NYSE 36 1/2 48 3/4 33 7/8 38 3/8 Motorola (diversified electronics) NYSE 38 7/8 50 33 5/8 35 5/8 National Semiconductor (semiconductors) NYSE 12 5/8 15 5/8 8 1/2 10 5/8 Total average return

Percent Stock Change Advanced Micro Devices (semiconductors) NYSE -52.6 Augat (electronics) NYSE -39.4 Avnet (electronics) NYSE -24.8 Dataproducts (computer printers) Amex -29.8 Hewlett-Packard (electronics, computers) NYSE +13.9 Honeywell (info. processing, computers) NYSE -20.2 International Business Machines (computers) NYSE -22.8 Loral (defense electronics) NYSE +5.1 Motorola (diversified electronics) NYSE -8.4 National Semiconductor (semiconductors) NYSE -15.8 Total average return -19.5

GREGORY H. KIESELMANN / Morgan, Olmstead, Kennedy & Gardner

Stock Open High Low Close Consolidated Stores (discount retailing) NYSE 7 3/4 23 5/8 7 3/8 13 1/2 El Torito Restaurants (restaurants) NYSE 12 5/8 20 1/2 10 5/8 20 Gull (aircraft instruments) Amex 15 3/8 16 7/8 9 1/2 13 3/4 IRT (inspect. & control equip.) Amex 9 1/2 14 5 6 1/8 Micro Mask (electronics) OTC 6 1/2 7 1 7/8 3 1/8 Nu-Med (hospitals) OTC 7 5/8 9 6 6 Optical Radiation (optical products) OTC 29 32 14 17 1/2 SFE Technologies (electronic components) OTC 7 3/8 10 2 5/8 3 5/16 Sound Warehouse (music retailing) OTC 22 1/2 31 1/8 13 1/2 13 7/8 Tech-Sym (diversified electronics) Amex 13 7/8 19 12 1/2 14 1/2 Total average return

Percent Stock Change Consolidated Stores (discount retailing) NYSE +74.2 El Torito Restaurants (restaurants) NYSE +60.4 Gull (aircraft instruments) Amex -10.6 IRT (inspect. & control equip.) Amex -35.5 Micro Mask (electronics) OTC -51.9 Nu-Med (hospitals) OTC -21.3 Optical Radiation (optical products) OTC -40.2 SFE Technologies (electronic components) OTC -55.1 Sound Warehouse (music retailing) OTC -38.3 Tech-Sym (diversified electronics) Amex +4.5 Total average return -11.4

STEVEN B. REID / Wedbush, Noble, Cooke

Stock Open High Low Close General Electric (diversified manufacturer) NYSE 72 3/4 88 3/4 66 1/2 86 Hewlett-Packard (electronics, computers) NYSE 36 3/4 49 5/8 35 3/4 41 7/8 RJR Nabisco (tobacco, food & beverages) NYSE 31 3/8 55 1/8 31 49 Novo Industri (pharmaceuticals, enzymes) NYSE 29 3/8 35 1/2 25 7/8 32 7/8 Noxell (cosmetics) OTC 29 5/8 47 29 3/8 42 PHH Group (auto & aviation services) NYSE 38 3/8 41 29 1/8 31 5/8 Redman Industries (manufactured housing) NYSE 9 1/2 12 5/8 6 7/8 8 3/4 Seagate Technology (computer components) OTC 7 21 7 1/8 19 1/8 Southwest Airlines (air transportation) NYSE 26 7/8 27 1/2 18 20 5/8 Standard Brands Paint (specialty retailing) NYSE 20 1/8 27 19 3/8 21 1/8 Total average return

Percent Stock Change General Electric (diversified manufacturer) NYSE +18.2 Hewlett-Packard (electronics, computers) NYSE +13.9 RJR Nabisco (tobacco, food & beverages) NYSE +57.0 Novo Industri (pharmaceuticals, enzymes) NYSE +11.9 Noxell (cosmetics) OTC +41.8 PHH Group (auto & aviation services) NYSE -17.6 Redman Industries (manufactured housing) NYSE -7.9 Seagate Technology (computer components) OTC +163.8 Southwest Airlines (air transportation) NYSE -23.3 Standard Brands Paint (specialty retailing) NYSE +5.0 Total average return +26.3